Gathering Support for Green Tax Reform: Evidence from German Household Surveys

50 Pages Posted: 4 Feb 2022

See all articles by Armon Rezai

Armon Rezai

Vienna University of Economics and Business

Miguel Tovar

Economic and Social Research Institute (ESRI)

Rick van der Ploeg

University of Oxford

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2022

Abstract

Green tax reform is unpopular because, typically, the poor are hurt most by the higher prices of carbon-intensive commodities. If revenues from a carbon tax are recycled, it may be feasible to gain popular support for green tax reform. To investigate this, we estimate an EASI demand system from German household data and a labour supply schedule, using wage data, and the German income tax schedule and let emission intensities decline in the carbon tax. If the revenue from a carbon tax is recycled via a lump-sum transfer to all households, this gives more equitable albeit less efficient outcomes, yet 70% of households are worse off. If the revenue is recycled via lower income taxes, there is more efficiency at the expense of more inequality, and about half of households benefit. With a recycling mix of lump-sum transfers and lower income taxes, popular support can be mustered without hurting equity too much. We also investigate the effects of Germany meeting its legal target for curbing emissions by 55% in 2030 relative to 1990 levels. We find that most of emission reductions are due to producers responding by lowering emission intensities rather than by consumers to less carbon-intensive consumption categories.

Keywords: carbon tax, EASI demand system, equity, Labour Supply, Popular support, revenue recycling

JEL Classification: D12, D31, D62, D63, H23, J22, Q5

Suggested Citation

Rezai, Armon and Tovar, Miguel and van der Ploeg, Frederick, Gathering Support for Green Tax Reform: Evidence from German Household Surveys (January 1, 2022). CEPR Discussion Paper No. DP16931, Available at SSRN: https://ssrn.com/abstract=4026835

Armon Rezai (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Miguel Tovar

Economic and Social Research Institute (ESRI) ( email )

Whitaker square Sir john Rogerson's Quay
Dublin 2
Dublin
Ireland

Frederick Van der Ploeg

University of Oxford ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
0
Abstract Views
42
PlumX Metrics